Hope grew today that mortgage rates have peaked as Nationwide became the biggest lender yet to cut its rates.
The country’s biggest building society is cutting the price of a fixed rate mortgage by up to 0.35 percentage points and a tracker mortgage by 0.2 percentage points. It joins HSBC, which became the first of the ‘big six’ to reduce rates when its lower prices came into effect yesterday, as well as Barclays.
With three top lenders having now cut their rates, Halifax, NatWest and Santander are expected to follow soon in order to stay competitive.
The declines follow better-than-expected news on inflation, which fell to 7.9% in June. That led City traders to believe the Bank of England may not need to hike interest rates as high as previously feared in order to bring prices back under control.
Where markets once saw the Bank Rate peaking at 6.75%, they now expect a peak of 6%.
Riz Malik, founder & director at R3 Mortgages, said there were signs of ’tranquility’ in the market, even if that was just temporary.
“This week is shaping up to be a standout one in recent months, as Nationwide joins the ranks of mortgage lenders lowering selected rates,” he said. “Despite the anticipated base rate hike next week, there seems to be a newfound tranquillity in the rate landscape.
“But the question remains: how much of this calm is seasonal versus an indication of improving market conditions? We will certainly find out in the weeks ahead.”
But Mike Staton, director of Staton mortgages, was more pessimistic.
“It's always been on the cards that rates will fall, what goes up surely must always come down,” he said. “The main issue is how long will this last, this isn't the first time we have seen a spate of reductions, and I won't be holding my breath too long until the bumbling idiots in power decide to leave us all in suspense, creating panic and seeing another increase in rates.
“We still have some way to go before the market stabilizes, unfortunately. The last years seem to have been 1 step forward and 2 steps back on too many occasions.”
Nationwide is the country’s third-biggest mortgage lender with a market share of close to 12%.
In a further sign that mortgage rates may have peaked, average rates as recorded by Moneyfacts declined today after a new high yesterday.
According to Moneyfacts, the average two-year fixed residential mortgage rate fell back down to 6.83% after hitting a new high of 6.86% yesterday.
The average five-year rate also fell after hitting a new high yesterday, to 6.34%.
Rates have dipped before rising again in recent days, but today’s decline comes alongside lenders reintroducing a wave of products to the market. The total number of mortgage products available exceeded 5,000 again for the first time in weeks.
But even as interest rates decline, they will remain far above what many mortgage holders have become accustomed to. According to the Bank of England, the average interest rate currently being paid by mortgage holders is still less than 3% as most are still on fixed-rate deals agreed at a time of lower rates..
As a result, economists have predicted a ‘mortgage time bomb’ is set to go off, as homeowners are forced to agree new deals at higher rates.
The Bank of England will meet next Thursday and is seen as all but certain to raise interest rates again, perhaps by as much as half a percentage point.
But Ben Tadd, director of broker Lucra Mortgages, pointed out that this does not necessarily mean fixed mortgage rates will rise again, as a hike is already priced in.
“Lenders are likely to have already priced in any potential Base Rate rises to be announced next week, into their newly released product ranges over the last few days, so it’s unlikely there will be a knee-jerk reaction to hike these new rates back up again next week,” he said.
